COMSTOCK HOLDING COMPANIES, INC. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto and Management's Discussion and Analysis included in our 2021 Annual Report on Form 10-K and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to "2022" refer to the three or six months endedJune 30, 2022 and references to "2021" refer to the three or six months endedJune 30, 2021 . The following discussion may contain forward-looking statements that reflect our plans and expectations. Our actual results could differ materially from those anticipated by these forward-looking statements. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law. Overview We are a leading developer and manager of mixed-use and transit-oriented properties in theWashington, D.C. metropolitan area. As a vertically integrated and multi-faceted asset management and real estate services company, we have designed, developed, constructed, acquired, and managed thousands of residential units and millions of square feet of commercial and mixed-use properties in since 1985. We provide a broad range of asset management and real estate services, including services related to the acquisition, development, and operation of real estate assets. Our customers and partners are composed primarily of private and institutional owners, investors in commercial, residential, and mixed-use real estate, and various governmental bodies seeking to leverage the potential of public-private partnerships. Our revenue is primarily generated by fees from the asset management and real estate services that we provide. In addition, we invest capital both on our own account and on behalf of clients and institutional investors seeking above average risk-adjusted returns. These strategic real estate investments tend to focus on office, retail, residential and mixed-use properties in which we generally retain an economic interest while also providing property management and other real estate services. Our managed portfolio is currently composed of 40 operating assets, including 15 commercial assets totaling approximately 2.2 million square feet, 6 multifamily assets totaling 1,636 units, and 19 commercial garages with over 13,000 parking spaces. Included in our managed portfolio areReston Station andLoudoun Station , two of the largest transit-oriented, mixed-use developments in theWashington, D.C. metropolitan area. The following tables provide a high-level summary of our managed portfolio: Anchor PortfolioReston Station Mixed-use development on Metro'sSilver Line (Phase I); strategically located betweenTyson's Corner, Va. andDulles International Airport Loudoun Station Mixed-use development on Metro'sSilver Line (Phase II); first Metro-connected development inLoudoun County, Va. Herndon Station Mixed-use development in the historic
downtown portion of
focus of public-private partnership with Town of Herndon
Investments/Assets Under Management
The Hartford Building Joint venture; 211,000 square footmixed-use building on Metro's Orange
Line in Arlington, Va.
Joint venture; 15-story, luxury high-rise apartment building near
BLVD Forty Four Rockville Metro Station in Montgomery County, Md.; adjacent to BLVD
Ansel
Joint venture; 18-story, luxury high-rise apartment building near
BLVD Ansel Rockville Metro Station in Montgomery County, Md.; adjacent to BLVD
Forty Four
International Gateway Various real-estate services provided for two privately-owned mixed-use
buildings located in Tyson's Corner, Va.
Investors X Investment in company that owns residual homebuilding operations
Additionally, we have the following assets under construction: (i) one
commercial asset totaling approximately 330,000 square feet, (ii) one
multifamily asset with 415 units and (iii) one hotel/condominium asset with 240
keys and 95 condos. Our development pipeline consists of 13 assets consisting of
approximately 1.5 million square feet of additional planned commercial
development, approximately 2,600 multifamily units and one hotel asset that will
include 140 keys.
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Substantially all the properties included in our managed portfolio are covered by long-term, full-service asset management agreements encompassing all aspects of design, development, construction, and operations management relating to the subject properties. The services we provide pursuant to the asset management agreements covering our managed portfolio vary by property and client. Anchoring our asset management services platform is a long-term full service asset management agreement with an affiliated company owned by our Chief Executive Officer,Christopher Clemente (the "2022 AMA"). The 2022 AMA encompasses the majority of the properties we currently manage, includingReston Station andLoudoun Station , two of the flagship properties that comprise our Anchor Portfolio. See Note 14 in the Notes to Consolidated Financial Statements for additional information. CES Divestiture OnMarch 31, 2022 , we completed the sale ofComstock Environmental Services, LLC ("CES"), a subsidiary of Comstock, toAugust Mack Environmental, Inc. ("August Mack") in accordance with the Asset Purchase Agreement for approximately$1.4 million of total consideration, composed of$1.0 million in cash and$0.4 million of cash held in escrow that is subject to net working capital and other adjustments. We executed this divestiture to enhance its focus pursue continued future growth initiatives for its core asset management business. We have reflected CES as a discontinued operation in its consolidated statements of operations for all periods presented. Unless otherwise noted, all amounts and disclosures relate to our continuing operations. See Note 3 in the Notes to Consolidated Financial Statements for additional information.
Series C Preferred Stock Redemption
OnJune 13, 2022 , we entered into a Share Exchange and Purchase Agreement ("SEPA") withCP Real Estate Services , LC ("CPRES"), an entity owned byMr. Clemente , to redeem all outstanding Series C preferred stock for (i) 1,000,000 shares of the Company's Class A common stock, par value$0.01 per share and (ii)$4.0 million in cash. The Series A common stock was valued at the consolidated closing bid price of Comstock shares on Nasdaq on the business day immediately preceding the entry into the SEPA. The$8.3 million fair value of the consideration paid upon redemption was less than the$10.3 million carrying value of the Series C preferred stock at the time of the transaction. This$2.0 million discount compared to the carrying value was added to net income for the three and six months endedJune 30, 2022 to arrive at income available to common stockholders and calculate net income (loss) per share. See Note 10 in the Notes to Consolidated Financial Statements for additional information.
COVID-19 Update
We continue to monitor the ongoing impact of the COVID-19 pandemic, including the effects of recent notable variants of the virus. While we have not experienced a significant impact on our business resulting from COVID-19 to date, future developments may have a negative impact on our results of operations and financial condition. The health and safety of our employees, customers, and the communities in which we operate remains our top priority. Although the long-term impact of the COVID-19 pandemic on the commercial real estate market in the greaterWashington, D.C. area remains uncertain, we believe that our Anchor Portfolio is well positioned to withstand any future potential negative impacts of the COVID-19 pandemic.
Outlook
Our management team is committed to executing our goal to provide exceptional experiences to those we do business with while maximizing shareholder value. We believe that we are properly staffed for current market conditions and the foreseeable future and feel that we will maintain the ability to manage risk and pursue opportunities for additional growth as market conditions warrant. Our real estate development and asset management operations are primarily focused on the greaterWashington, D.C. area, where we believe our 35-plus years of experience provides us with the best opportunity to continue developing, managing, and investing in high-quality real estate assets and capitalizing on positive growth trends. 18
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Results of Operations
The following tables set forth consolidated statement of operations data for the periods presented (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue $ 8,467 $ 6,324 $ 17,198 $ 13,164
Operating costs and expenses:
Cost of revenue 6,831 5,502 13,766 11,580
Selling, general, and administrative 469 308 856 607
Depreciation and amortization 50 22 94 42
Total operating costs and expenses 7,350 5,832 14,716 12,229
Income (loss) from operations 1,117 492 2,482 935
Other income (expense):
Interest expense (69) (58) (128) (116)
Gain (loss) on real estate ventures 17 (100) 269 (94)
Other income 1 (1) 1 -
Income (loss) from continuing operations
before income tax 1,066 333 2,624 725
Provision for (benefit from) income tax 352 (11,316) (104) (11,314)
Net income (loss) from continuing
operations 714 11,649 2,728 12,039
Net income (loss) from discontinued
operations (10) (444) (277) (587)
Net income (loss) 704 11,205 2,451 11,452
Impact of Series C preferred stock
redemption 2,046 - 2,046 -
Net income (loss) attributable to common
shareholders $ 2,750 $ 11,205 $ 4,497 $ 11,452 Comparison of the Three Months Ended
Revenue
The following table summarizes revenue by line of business (in thousands):
Three Months Ended June 30,
2022 2021 Change
Amount % Amount % $ %
Asset management $ 5,538 65.4 % $ 4,257 67.3 % $ 1,281 30.1 %
Property management 2,192 25.9 % 1,712 27.1 % 480 28.0 %
Parking management 737 8.7 % 355 5.6 % 382 107.6 %
Total revenue $ 8,467 100.0 % $ 6,324 100.0 % $ 2,143 33.9 %
Revenue increased 33.9% in 2022. The
Operating costs and expenses
The following table summarizes operating costs and expenses (in thousands):
Three Months Ended June 30, Change
2022 2021 $ %
Cost of revenue $ 6,831 $ 5,502 $ 1,329 24.2 %
Selling, general, and administrative 469 308 161 52.3 %
Depreciation and amortization 50 22 28 127.3 %
Total operating costs and expenses $ 7,350 $ 5,832 $ 1,518 26.0 %
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Operating costs and expenses increased 26.0% in 2022. The$1.5 million comparative increase was primarily due to a$1.3 million increase in personnel expenses stemming from market and merit-based compensation increases along with increases in our headcount. Other income (expense)
The following table summarizes other income (expense) (in thousands):
Three Months Ended June 30, Change
2022 2021 $ %
Interest expense $ (69) $ (58) $ (11) 19.0 %
Gain (loss) on real estate ventures 17 (100) 117 (117.0) %
Other income 1 (1) 2 (200.0) %
Total other income (expense) $ (51) $ (159) $ 108 (67.9) %
Other income (expense) increased $0.1 million in 2022, primarily driven by
higher overall mark-to-market valuations of the fixed-rate debt associated with
our equity method investments in the current period as well as the impact of a
loss on our Investors X investment in 2021 that was driven by lower expected
cash flows in the prior period valuation.
Income tax
Provision for income tax was$0.4 million in 2022, compared to an tax benefit of$11.3 million in 2021. The large year-over-year change was primarily driven by a higher release of deferred tax asset valuation allowances in 2021. All recognized tax benefits stemming from valuation allowance releases are supported by our recent trend of positive net income from continuing operations and our current expectation that our operations will continue to generate future taxable income.
Comparison of the Six Months Ended
Revenue
The following table summarizes revenue by line of business (in thousands):
Six Months Ended June 30,
2022 2021 Change
Amount % Amount % $ %
Asset management $ 11,535 67.1 % $ 9,150 69.5 % $ 2,385 26.1 %
Property management 4,323 25.1 % 3,342 25.4 % 981 29.4 %
Parking management 1,340 7.8 % 672 5.1 % 668 99.4 %
Total revenue $ 17,198 100.0 % $ 13,164 100.0 % $ 4,034 30.6 %
Revenue increased 30.6% in 2022. The
Operating costs and expenses
The following table summarizes operating costs and expenses (in thousands):
Six Months Ended June 30, Change
2022 2021 $ %
Cost of revenue $ 13,766 $ 11,580 $ 2,186 18.9 %
Selling, general, and administrative 856 607 249 41.0 %
Depreciation and amortization 94 42 52 123.8 %
Total operating costs and expenses
$ 2,487 20.3 % 20
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Operating costs and expenses increased 20.3% in 2022. The$2.5 million comparative increase was primarily due to a$2.4 million increase in personnel expenses stemming from market and merit-based compensation increases along with increases in our headcount. Other income (expense)
The following table summarizes other income (expense) (in thousands):
Six Months Ended June 30, Change
2022 2021 $ %
Interest expense $ (128) $ (116) $ (12) 10.3 %
Gain (loss) on real estate ventures 269 (94) 363 (386.2) %
Other income 1 - 1 N/M
Total other income (expense) $ 142 $ (210) $ 352 (167.6) %
Other income (expense) increased $0.4 million in 2022, primarily driven by
higher mark-to-market valuations of the fixed-rate debt associated our equity
method investments in the current period as well as additional gains on the
performance of our title insurance joint venture with Superior Title Services,
Inc. , driven by higher volume as compared to the prior period. Also contributing
to the increase was the impact of a loss on our Investors X investment in 2021
that was driven by lower expected cash flows in the prior period valuation.
Income taxes
Benefit from income tax was$0.1 million in 2022, compared to a tax benefit of$11.3 million in 2021. The large year-over-year change was primarily driven by a higher release of deferred tax asset valuation allowances in 2021. All recognized tax benefits stemming from valuation allowance releases are supported by our recent trend of positive net income from continuing operations and our current expectation that our operations will continue to generate future taxable income. Non-GAAP Financial Measures
To provide investors with additional information regarding our financial
results, we prepare certain financial measures that are not calculated in
accordance with generally accepted accounting principles in
We define Adjusted EBITDA as net income (loss) from continuing operations, excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, and gain (loss) on equity method investments.
We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute Adjusted EBITDA consistently using the same methods each period. We believe Adjusted EBITDA is a useful measure because it permits investors to better understand changes over comparative periods by providing financial results that are unaffected by certain non-cash items that are not considered by management to be indicative of our operational performance. While we believe that Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. Adjusted EBITDA should not be considered in isolation, or as a substitute, for other financial performance measures presented in accordance with GAAP. Adjusted EBITDA may differ from similarly titled measures presented by other companies.
The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA (in thousands):
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Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net income (loss) from continuing
operations $ 714 $ 11,649 $ 2,728 $ 12,039
Interest expense 69 58 128 116
Income taxes 352 (11,316) (104) (11,314)
Depreciation and amortization 50 22 94 42
Stock-based compensation 220 154 417 306
(Gain) loss on real estate ventures (17) 100 (269) 94
Adjusted EBITDA $ 1,388 $ 667 $ 2,994 $ 1,283 Liquidity and Capital Resources
Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities. Our principal sources of liquidity as ofJune 30, 2022 were our cash and cash equivalents of$8.4 million and our$4.5 million of available borrowings on our credit facility.
Significant factors which could affect future liquidity include the adequacy of available lines of credit, cash flows generated from operating activities, working capital management and investments.
Our primary capital needs are for working capital obligations and other general corporate purposes, including investments and capital expenditures. Our primary sources of working capital are cash from operations and distributions from investments in real estate ventures. We have historically financed our operations with internally generated funds and borrowings from our credit facilities. The outstanding balance of$5.5 million on our credit facility is scheduled to mature inApril 2023 , at which point we plan to extend the life of the facility or pay down the outstanding balance in full. For further information on our debt, see Note 7 in the Notes to Consolidated Financial Statements.
We believe we currently have adequate liquidity and availability of capital to fund our present operations and meet our commitments on our existing debt.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended June 30,
2022 2021
Continuing operations
Net cash provided by (used in) operating activities $ (590) $ 822
Net cash provided by (used in) investing activities (2,067) 2,483
Net cash provided by (used in) financing activities (4,488) (168)
Total net increase (decrease) in cash - continuing operations
(7,145) 3,137
Discontinued operations, net (251) 36
Net increase (decrease) in cash and cash equivalents
Operating Activities Net operating activity cash decreased$1.4 million in 2022, primarily driven by a$3.1 million incremental cash outflow stemming from changes to our net working capital, partially offset by a$1.7 million increase in net income from continuing operations after adjustments for non-cash items. The net working capital impact included decreased accounts receivable and accrued personnel costs. 22
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Investing Activities
Net cash used investing activities was$2.1 million in 2022, compared to$2.5 million provided by investing activities in 2021. The net$4.6 million change was primarily driven by our$2.7 million real estate investment in BLVD Ansel and a$2.5 million decrease in distributions from real estate investments, partially offset by$1.0 million in proceeds received from the CES divestiture.
Financing Activities
Net cash used in financing activities increased by
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